5 Common Business Cash Flow Management Mistakes

Business reports with a red circle indicating a cash management mistake.

Cash flow management affects every aspect of a business, from the availability of funds for capital projects to the ability to survive unexpected economic events. It’s also a key component to maintaining great relationships with suppliers, employees, and partners.

On the other hand, poor cash management can lead to the loss of vendor relationships, poor credit ratings, and even bankruptcy. That’s why businesses must ensure they aren’t making these common cash flow management mistakes.

Cash Flow Management Mistake #1: Inadequate Cash Reserves

At a minimum, businesses must keep enough cash on hand to meet their day-to-day obligations, like payroll and other operating expenses. However, as many companies have learned in the past 15 years, this just isn’t enough. For a company to be financially secure, they need enough reserves to float operations for at least a few months in the case of an unexpected event.

The amount of cash to keep in reserve varies by business type and circumstance. That’s why many financial managers work tirelessly to determine the optimal amount of liquid cash to hold in reserve – balancing stability with opportunity cost. Those managers who find the perfect balance of liquidity and return for their business can maintain an important advantage.

Cash Flow Management Mistake #2: Unprotected Cash

Bank failures are rare, but they do occur. Businesses should prepare for this scenario by ensuring their cash is protected. There are several options when it comes to protecting your cash, but none are more secure than the Federal Deposit Insurance Corporation [FDIC] — or NCUA for credit unions.

The FDIC / NCUA offers the highest level of protection, as these programs are backed by the “Full Faith and Credit of the U.S. Government”, and business accounts opened at member banks are automatically covered up to $250,000 per bank and ownership category. This limit can create problems for organizations with cash reserves larger than the limit. However, the American Deposit Management Co. [ADM], provides an innovative solution to this issue with our AMMA™ account.

Cash Flow Management Mistake #3: Idle Cash

Another mistake businesses often make when managing their cash is neglecting to invest that cash effectively. Businesses who leave large sums of cash in their bank’s savings or money market accounts, earning little to no interest, are leaving cash on the table. For those companies whose reserves are oversized, this can be an even larger mistake.

With inflation currently skyrocketing in the U.S., poorly invested cash can lose value over time – if the rate of return doesn’t exceed the rate of inflation. This means keeping reserve cash working effectively is extremely important, and here at ADM, we have a robust solution that provides access to extended protection and competitive returns for your business cash.

Cash Flow Management Mistake #4: Inadequate Control Over Cash Outflows

For most companies, manual processing of invoices includes several touchpoints for receipt, approval, and payment. This can be time-consuming and expensive. Luckily, modern financial technology [fintech] has focused on streamlining banking processes and has made these transactions more seamless for banks and consumers.

Having a complicated vendor payment process can also increase the prevalence of human error which can result in missed payments, late payment penalties, impaired vendor relations, or even fraud. At ADM, we make automating cash outflows simple with our proprietary fintech. Our fintech-powered American Payment Solutions program can save time and money, reduce the risk of errors, and increase visibility into accounts payable processes.

Cash Flow Management Mistake #5: Running a “Cash Only” Business

Finally, this may come as a shock to some, but many businesses still prefer to pay for everything in cash. Operating a cash-only business and not taking advantage of debt or extended vendor payment terms can leave your accounts thin in times of crisis and hamper your ability to take advantage of opportunities as they arise.

So, if your suppliers offer financing or extended payment terms, consider taking advantage of these valuable programs. Effective management of cash can provide more available funds each month for activities that lead to expansion, innovation, and automation. At ADM, our vendor payment processing program leverages our proprietary fintech to optimize vendor payments, reduces the opportunity for fraud, and streamlines your entire payment process.

ADM has the tools to help manage your cash flow.

Managing cash flow effectively takes lots of effort, and we have the tools to help businesses succeed in this area. At ADM, our team is our secret sauce, and we are always working hard to ensure your money is being managed efficiently. So, if you’re interested in extended protection for your corporate cash, reach out to a member of our team.

If you’re looking for even more valuable insights on banking, interest rates, and effectively managing your business cash, be sure to check out our Insights page and follow ADM on TwitterFacebook, and LinkedIn.